Unjust Dismissal Under Canada Labour Code

Settlement Agreement

The critical issue under review in this topic is a section of the Code which states that the Unjust Dismissal section, under Part III of the Code, applies, notwithstanding any contract that states otherwise, unless this agreement is more beneficial than the terms of the Code. 1

Several decisions have held that a settlement agreement which releases the right of the individual to proceed with an Unjust Dismissal complaint is not enforceable.

The leading case on this subject is a 1998 Federal Court of Appeal decision, one which upheld that of the first reviewing court. 2 The employee had signed a release by which she had discharged the employer from all claims arising from her termination in consideration for which she received a lump sum payment plus relocation counselling. Two weeks later, she filed a complaint.

The employer brought a judicial review application which failed, based on the above section which was found to have prohibited the employee from contracting out of their statutory rights. The Federal Court of Appeal upheld this award with brief reasons. Rothstein. J., the first reviewing judge, did note the policy implications of his decision. The decision observed that the decision to appoint an adjudicator may take into consideration the existence of such a settlement. Also, once appointed, the decision maker may still consider the sums paid in the decision to make an award, or even decline to make an award where the sum received may have exceeded the award contemplated.

A renewed application to challenge this finding followed in the Federal Court of Appeal in 2020. 3 The challenge failed.

The adjudicator upheld the right to proceed with the hearing, based on the above analysis in National Bank. This decision was reviewed.

Three arguments were raised, apart from the submission that the standard should be correctness, one which was rejected as summarized above.

The three additional arguments were:

  1. National Bank conflated prospective and retrospective waivers of statutory rights, a decision which ignored the common law’s acceptance of retrospective releases.
  2. There are compelling policy reasons to allow retrospective releases;
  3. A reversal of National Bank would enhance certainty and predictability of the law.

Each of these arguments failed. National Bank remains the law.

The above does not, however, preclude a proper settlement of all issues, following the filing of the Code unjust dismissal complaint. In this instance, the settlement agreement which purports to bar the complaint from proceeding will be successfully defended. In this instance, there is no jurisdiction to proceed. 4

This then raises the question of the process in the event that the employee raises defences against the settlement agreement, such as duress or unconscionability, or misrepresentation or any other challenge to the validity of the agreement. In the case referenced above, the adjudicator concluded that she had no authority to do so, once the settlement agreement was asserted. Such relief, she stated, should be by a court challenge. 5